Southwest's profit dented by higher pay

AustenHufford

Southwest Airlines Co.'s revenue grew in its latest quarter, but the company said higher compensation costs, due to new contracts, weighed on results.

Still, the company posted a record annual profit and carried a record number of customers.

Still, unit revenue in the quarter -- an important metric in the airline industry that measures the revenue taken in per seat flown a mile -- fell 2.9% in the December quarter. U.S. carriers have benefited from lower fuel expenses, but after years of record profitability, new capacity growth from increased competition has pushed unit revenues lower.

Fourth-quarter unit costs increased due to higher fuel costs, pay increases from union contracts and additional depreciation expense associated with the retirement of its Boeing 737-300 aircrafts. By the end of the third quarter, Southwest intends to retire all 87 737-300s that remain in its fleet. Adjusted unit costs, which excludes fuel and special items, grew 3.6%.

Southwest expects cost pressures to continue this year due to union contract pay increases. Last year, the company agreed to new contracts with both its pilots union and flight attendants union.

Available seat miles, a measure of an airline flight's passenger carrying capacity, grew 5% as the carrier transported 5.4% more paying passengers.

In all, Southwest posted a profit of $522 million down from $536 million a year earlier. On a per-share basis, earnings rose to 84 cents from 82 cents as the number of shares outstanding fell 5.3%. Excluding special items, the company earned 75 cents a share.

Revenue grew 2% to $5.08 billion.

Analysts surveyed by Thomson Reuters had expected earnings of 70 cents a share on $5.03 billion in revenue.

The company ended the year with 723 aircrafts, reflecting the delivery of 38 new planes, purchasing 23 preowned aircrafts and retiring 42 planes.

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